Sooner or later every business owner will encounter a defaulter: a person that does not pay the invoice sent by your company. In most cases, it is not the best approach to immediately bring such a case before the court. It is better to start with a demand letter. Often payment will follow upon receipt of the demand letter by the debtor and the long and expensive way through court will no longer be necessary.
Even if the debt is not settled following the demand letter, the demand letter can still be used as a valuable piece of evidence in court. When you are writing the demand letter you should therefore keep in mind that your public is twofold: the letter is addressed to the debtor but it should also be clear for a judge, in case you need to take the debtor to court after all.
1. Describe the Problem
To make sure that both the debtor and the court would understand the situation in which you demand payment, it is advised to include a complete description of the problem in the demand letter. Mention the invoiced amount, the invoice number (if any), and the service or goods for which the payment is due. Also, describe your previous attempts to obtain payment. Mention the calls you made, and the previous letters or emails you sent to remind the debtor to pay the invoice. It is also practical to add copies of the invoice and any related documents to the demand letter. This prevents the debtor from stalling payment by requesting to receive these documents again. It also helps the judge to have a complete picture of the facts.
2. Demand a Solution
Be clear that you offer a last opportunity to pay the invoice. Also, include any interest due or a contractual fine incurred because of the payment default. Be aware that claiming the interest and a contractual fine on top of the invoiced amount can also be used as a bargaining chip. Read further under rule five. Do not forget to include the payment details such as your account number etc.
3. Grant a reasonable Term to solve the Problem
It is important to give the debtor sufficient opportunity to pay the invoice. The court will verify if the payment term granted is long enough to perform the payment. It is practical to include both the duration of the term and the ultimate day on which the payment should be received by you. This way there cannot exist any confusion for the debtor about the payment term. If the payment due can be paid by a simple one-time payment, you should consider a payment term of five or ten business days.
4. Include a Notice of Default
For the court it will matter if it was clear for the debtor that the demand letter was a notice of default. A notice of default has as a consequence that the debtor is officially in default when he does not perform the payment requested in the demand letter within the term granted. Of course it is important that the payment is already payable under the original agreement for a default to occur pursuant to the notice of default. To be totally secure, include the wording ‘notice of default’ in the subject line or in the body of the
5. Warn for the Consequences of Non-payment
Part of ensuring that the debtor is aware that this is his last opportunity to fulfill his payment obligation, is to point out the consequences of non-payment. The consequence of non-payment within the term granted has to be described in the demand letter. Here you can use the payment of interest or a fine as a bargaining chip by stating that you will only collect the interest and fine due, if payment does not take place pursuant to the demand letter.
If the debtor depends on your goods or services, it might also be effective to threaten to break off the business relationship. Further consequences can be to turn over the collection of the invoice to a debt collection office or an attorney or to take the debtor to court with all the extra costs coming for the account of the debtor.
6. Confirm Receipt
If you expect that you might have to use the demand letter in court, make sure that you obtain proof that the demand letter has reached the debtor. This can be done by sending the letter via registered mail. You can also send a scanned copy of the letter per email and select the options to confirm that the email has been received and read. This way it becomes hard for the debtor to deny in court that he has not received the demand letter.